Expenses Margin=Gross Profit Margin-Net Profit Margin
2.2 Liquidity Ratio Liquidity ratio is a financial metric that are used to evaluate a business’ capability to pay off its short term obligations and debts. The higher the ratio, the higher the margin for safety that the company is able to pay off any requirements. There are two types of ratio, the current ratio and quick ratio. (Morley, 2010)
2.2.1 Current Ratio The current ratio measures the ability of a company to pay off its short term obligations or debts. This ratio is measured in times. (InvestingAnswers Inc, 2012)
Current Ratio=Current AssetsCurrent Liabilities
2.2.2 Quick Ratio
The quick ratio measures the ability of a company to pay off its short term obligations or debts immediately. This ratio is measured in times.
Quick Ratio=Current Assets-StockCurrent Liabilities
2.3 Efficiency Ratio Efficiency ratio is used to obtain information regarding the time period used for the turnover of receivables, repayment of liabilities and the stock management. There are three types of ratio, the debtor turnover period, creditor turnover period, and the stock turnover period. (Walsh, 2009) 2.3.1 Debtor Turnover Period The debtor turnover period is used to measure the numbers of days for collection of trade receivables. It measures the credit extended to debtors and shows the credit control